Corporations Flashcards
Promoters
Liable for pre-incorporation transactions until a novation occurs.
Certificate of formation formalities
1) Name (with corporation markers, and cannot be misleading). Can be reserved for 120 days.
2) Purpose
3) Authorized shares (classes, number and par value)
4) Duration (by default, perpetual)
5) Name and address of corporate agent
6) Organizer’s name and address
7) Initial directors
De Facto corporation
Acting in good faith under the corporate name, but some formality was missed.
Shareholder Meeting Notice Requirements
- Must be sent to all shareholders, regardless of whether they can vote, at least 10 days prior but no earlier than 60 days prior. Requires 21 days’ notice for a fundamental transaction.
- Must include the matters to be addressed, place, day and meeting time.
- First-class mail, personal notice or electronic transmission (if consented to)
Record date limit
Cannot be more than 60 days prior to the meeting
Minimum quorum
1/3
Cumulative voting law
Opt-out before 9/1/03, opt-out later
Irrevocable proxies
Must state it is irrevocable and must be coupled with an interest.
Voting pool
Majority choice rules the whole block, and can be specifically enforceable.
Must be deposited with the corporation at its principal or registered office.
Inspection rights
Requires at least 5% of the outstanding shares or must have been a shareholder for at least 6 months
Derivative Suits Procedures
- Standing (shareholder at the time of the event)
- Written board demand - must give the company 90 days unless waiting would cause irreparable harm.
- Majority of disinterested directors must then decide whether to dismiss it because it is not in the corporation’s best interests.
Piercing corporate veil factors
- Undercapitalization
- Disregard of corporate formalities
- Commingling of corporate assets
- Self-dealing
- Fund siphoning
- Use of corporate form to avoid legal obligations
- Impermissible control or domination over the corporation
- Wrongful, misleading, or fraudulent dealings with a corporate creditor
Director proxy voting
Not allowed in TX
Director dissent
- Promptly object to the holding of the meeting
- Ensure that director’s dissent or objection is noted in the meeting minutes; or
- Not vote in favor of the action and deliver written notice of dissent to the presiding officer before meeting adjourns or to the corporation immediately after the meeting adjourns.
Duty of care violations
- Oversight failure
- Decision-making failure (process inquiry)
Duty of Loyalty
- Conflicting interest transactions (Disclose to disinterested directors who can cleanse, otherwise board will evaluate fairness)
- Usurpation of corporate opportunity (present and let corporation accept or reject opportunity)
- Not to compete
- Salaries
Indemnity
- Mandatory for completely successful defense
- prohibited for improper financial benefit
- may indemnify for good faith violations
A corporation may indemnify an officer when:
(1) the officer acted in good faith with the reasonable belief that his conduct was in the best interests of the corporation, or that his conduct was at least not opposed to the best interest of the corporation; and
(2) in the case of a criminal proceeding, the officer did not have reasonable cause to believe that his conduct was unlawful.
Par value
Minimum price for which corporation can issue its shares
Watered stock
Sold under par
Treasury stock
Previously-issued stock that the corporation repurchases.
Preemptive rights
Do not apply (unless otherwise stated in COF):
- Stock issued for services or property;
- Stock sold or granted as a form of compensation
- Shares issued within 6 months of formation
- Preferred or nonvoting shares
- Shares with preemptive rights not acquired within the 1st year of offering
Shareholder approval of merger
2/3 (unless otherwise specified in COF)
Shareholder approval of capital reductions
For no par value shares, requires majority shareholder approval
Appraisal exceptions
- Market-out
- 90% ownership
Appraisal procedure
1) Shareholder notification to president and secretary
2) No favorable vote
3) Written demand for payment:
- Addressed to the corporation’s president and secretary
- Order for fair value
- Return address
- Number and class of shares along with fair value estimate
- Within 20 days of notice that the action was approved
- Relinquish share certificates within 20 days of making demand
4) Corporation must respond within 20 days of demand
5) Make payment within 90 days if corporation agrees, or 120 days after agreement if it originally disagreed
Shareholders’ involuntary termination
- Deadlocked, if corporation suffering or is threatened with irreparable injury
- Deadlock in shareholder voting power that hasn’t been broken in 2 consecutive annual meetings
- Director actions are illegal, oppressive or fraudulent
- Corporate assets are being wasted or misapplied
S corporation
- Pass-through taxation
- One class of stock
- No more than 100 shareholders, all of which are U.S. residents
Franchise Tax
1% of margin.
- Deduct one of cost of goods sold, wages and benefits (capped at $300,000 per individual), or 30% of revenue
- Not due if revenue after exclusions is less than $300,000
Waiver of Preemptive Rights
A shareholder may waive his preemptive rights. A waiver of the right to exercise a preemptive purchase is irrevocable if in writing, but it may be revoked if made orally.
